This letter is submitted on behalf of the Credit Union National Association in response to the
Notice of Proposed Rulemaking (NPR) issued jointly by the Department of the Treasury and the Board of
Governors of the Federal Reserve System on the prohibition on funding unlawful Internet gambling. By
way of background, CUNA represents approximately 90 percent of our nations 8,400 state and federal
credit unions, which serve nearly 87 million members. The views reflected in this letter are based on
the input from members of the CUNA Payments Policy Subcommittee and Payments Operations Task Force, as
well as on comments we received from other credit unions and leagues.

A Moratorium Is In Order

CUNA commends the Treasury and Federal Reserve Board for your efforts to comply in a timely manner
with statutory requirements to implement the Unlawful Internet Gambling Enforcement Act of 2006 (Act),
a complex statute, while mindful of the additional regulatory burdens the new law will impose on
financial institutions. However, the proposal raises a number of serious and practical concerns that
we believe will make compliance for institutions extremely difficult, if not virtually impossible. In
light of those concerns, we have written to House Financial Services Committee Chairman Barney Frank
and Ranking Minority Member Spencer Bachus seeking their support for a moratorium on the
implementation of the law until a number of issues can be resolved.

CUNA supports the objective of the Act, which is to eliminate payments to unlawful internet gambling
businesses. To achieve that result, the law prohibits the receipt of checks, credit payments,
electronic funds transfers and similar transactions for businesses engaged in such unlawful
activities. The law also directs Treasury and the Federal Reserve, in conjunction with the Justice
Department, to promulgate regulations within nine months to require covered payment systems and
financial transaction providers that participate in those systems to identity and prevent transactions
that fund unlawful Internet gambling.

Despite our recognition of the importance of curtailing unlawful Internet gambling, we cannot
support the proposal as it presents a number of problematic issues, We feel much more time is needed
to sort out issues unanswered by the statute and develop workable approaches that will meet the laws
objectives. A discussion of our specific concerns is below.

The Proposal Raises Fundamental Issues

One of our most basic concerns with the proposal is that it seeks to impose complicated policing
activities on financial institutions that are in business for another purpose  to provide financial
services to their communities and markets. In recognition of that fact, we believe the Internet
gambling enforcement responsibilities imposed on financial institutions should be limited and straight
forward.

Of equal concern, it is not clear how institutions will be able to meet their compliance
requirements to identify and block transactions that fund illegal gambling activities when there is no
mechanism under consideration that would allow them to verify when a payment transaction is intended
for that purpose.

One means to facilitate compliance for institutions would be for the government to provide a list
of unlawful Internet gambling businesses. The supplementary information discussing the proposal goes
to great lengths to explain why such a list should not be provided by the government.

We appreciate the concerns raised in the supplementary information that such a list would require
periodic updating and thus could be costly to maintain. While such a list may not be feasible for the
government, reasonable compliance for financial institutions will be impossible without some system
under which illegal Internet gaming businesses can be identified. Also, it is completely unreasonable
to expect financial institutions to develop and maintain their own internal lists.

One solution that would promote regulatory simplicity while assisting institutions to comply is
contained in HR 2046, the Internet Gambling Regulation and Enforcement Act, introduced by House
Financial Services Committee Chairman Barney Frank. This bill would require Internet gaming
businesses to be licensed and pay user fees to the Financial Crimes Enforcement Network (FinCEN).

We can envision that under this measure a list of licensed gambling enterprises could be developed
for use in identifying and blocking transactions for Internet gambling entities that are not on the
list. (The list could possibly be augmented by information from the Justice Department regarding such
businesses or individuals involved in illegal gaming activities.) Such an approach would promote
compliance for institutions by providing them a much greater level of certainty as to whether a
transaction for a particular entity should be prevented. In conjunction with the development of such
a list, the exemptions and safe harbor provisions in the proposal (modified as discussed below) would
help provide a regulatory framework that assists in policing illegal Internet gambling activities
without inflicting unreasonable and unworkable compliance burdens on financial institutions.

We recognize that this is not a total solution and that entities offering illegal Internet gambling
activities could operate under business names that are very similar to those on such a list or could
avoid the licensing process and operate using a name that would not permit ready identification as an
internet gambling organization. These concerns, however, should be beyond the scope of matters that
financial institutions are required to address.

We also realize that Congress has not enacted HR 2046. However, until the government is able to
provide a workable list or until Congress passes legislation such as HR 2046 to license legal
activities, we feel it will be extremely difficult for institutions to identify and block transactions
that they cannot conclusively determine are illegal. That is why we believe a moratorium on the
promulgation of this regulation is necessary until a better approach for identifying the payee as an
Internet gambling business can be established.

Definition of Unlawful Internet Gambling Is Unclear

The proposal to a large extent utilizes the definition of Unlawful Internet Gambling as provided
in the Act. While we appreciate that the proposal should be consistent with the Act, our members did
not find this definition useful in helping them to identify the types of activities that are illegal,
even in light of the proposed definition of restricted transactions. We believe the proposal needs
to provide clearer information to institutions on what illegal activities are covered so that they
have a better understanding of the transactions they are expected to identify and block.

CUNA Supports the Exemptions

The proposal would exempt certain participants in ACH systems, check collection systems and wire
transfer systems from having to develop written policies and procedures. We support such the
exemptions, which would cover most participants in these systems.

Policies and Procedures Explanations Should Be Expanded

The proposal would require institutions to establish and implement policies and procures to
identify and block restricted transactions. Alternatively, institutions could rely on policies and
procedures established by the payments system, as provided under the proposal. Section ____.6 of the
proposal provides some examples of policies and procedures that institutions should develop to assist
them in identifying and blocking covered transactions.

Our members were concerned about the scope of the requirements, particularly under the Card system
examples. To illustrate, the proposal calls for participants including card issuers to monitor
websites to detect unauthorized use of the relevant card system, including monitoring and analyzing
payment patterns. This is not realistic. The examples also direct covered entities to address due
diligence without defining or explaining what is meant by that term.

Examples of policies and procedures could be extremely beneficial and we encourage the agencies to
develop guidance that provides model language that financial institutions could incorporate in
complying with the proposal.

Safe Harbor Should Be Enlarged

Under Section ____.5 of the proposal, institutions that reasonably believe a transaction is
restricted will not incur liability for incorrectly blocking the transaction. We support such a safe
harbor for institutions that inadvertently block transactions that are not covered by the rule.

However, the regulation should clearly discuss what is necessary for an institution to show that
its belief was reasonable. We also support a change in the proposal to provide a safe harbor when an
institution with reasonable policies and procedures inadvertently mis-identifies and thus fails to
block a restricted transaction, particularly if the institution makes a good faith effort to otherwise
comply with the regulation.

Further, the proposal contemplates that when restricted transactions are involved, an account could
be closed under an institutions compliance procedures. We believe the safe harbor should also
encompass situations in which an account is closed based, in good faith, on an erroneous analysis or
treatment of a transaction or transactions that the institution reasonably believed were restricted.
Situations involving a decision to decline to open an account should also be covered by the safe
harbor.

Enforcement Provisions Should be Clearer

Section _____.7 of the proposal states that the Federal functional regulators will be responsible
for enforcing the rule. However, it is not clear how enforcement would occur. The financial
regulators should develop a uniform approach for enforcing the rule which is provided to institutions
when the rule is adopted in final form.

The Effective Date Should Be Extended

The agencies sought comments on whether the proposal could take effect six months after the final
rule is adopted. While we do not believe this proposal should be promulgated, if the agencies decide
to proceed we believe at least a year or perhaps up to 18 months would be necessary for institutions
to digest the proposal, develop and adopt proper policies and procedures, and review and modify
operations to conform to the new requirements.

Conclusion

The law passed by Congress has commendable objectives, but is difficult to implement. We feel that
rather than continue with implementation of the current proposal, which raises a range of problematic
issues, the regulators should work together with Congress to develop an approach that will meet public
policy goals in a clearly understood manner and without inflicting undue hardships on the financial
institution sector in the process.